In 1952, despite all the tough economic times the country had been through, the average homeowner had 80% of the value in his (her) home as equity, the rest being debt. That percentage stayed as high as 70% as late as 1985. It is now 43%.

Based on various other statistics, I calculate that the homeowners who have mortgages only have at most 18% of the value of their homes as equity, the rest being debt (mortgage(s)).

Worse, for them to realize money from their homes, they will face commissions and other closing costs of (say) 8%. So for the about 70% of homeowners who do not own their home free and clear, if they sell, they will receive almost none of the value of the house.

Thus, the forces that control this economy have seen to it that most homeowners are financial serfs.

Next, on the same debt/credit axis, the Labor Department reported that corporate debt rose at a 2.2% annual rate. (One wonders why it rose at all in a severe economic downturn, and who lent the funds). However, total nonfinancial debt rose at a 6.3% annual rate in Q4 2008 (after rising 8.1% in Q3). Why so much increase in debt? Because the Federal government raised its debt issuance by 37% (following an increase of 39% in Q3), that's why.

Thus, all the talk in the media about "deleveraging" misses the more major point. Yes, it is true that Goldman, Sachs and Morgan, Stanley can now control fewer assets per borrowed dollar. That is a form of deleveraging. The more major form of leverage is debt itself. The Merchants of Debt, led by the Federal Reserve and the Federal Government, with their favored industry of finance, continue to grow. "Reform" is likely to simply mean a greater presence for the Feds, but with institutionalization of the toxic derivatives such as credit default swaps that Nassim Taleb correctly inveighs against rather than the banning of them.

The large financial institutions are being rapidly recapitalized by such maneuvers as putting Federal money into the vehicles of AIG and Fannie and Freddie, which are losing vast sums on derivatives. Since it is in the nature of derivatives that there is generally a winner for every loser, you can be sure that the winners are the politically favored large complex financial institutions all over the globe. This why Simon Johnson (former chief economist of the IMF and now a professor at MIT) in "Business as Usual", reports that:

If you think that the power of the banking industry may be in decline, or that its leaders are humbled, or that any kind of major change is underway, please review carefully Jamie Dimon’s speech from Wednesday, March 11 (available on Bloomberg.com).

Mr. Dimon, who runs JP Morgan Chase, makes it clear that he has great respect and appreciation for all that Hank Paulson did for the financial sector. He also strongly implies that it is time for the government to stop worrying about what approach to adopt; as far as he is concerned, the time for wrangling and figuring out what went wrong is over and the time for really big transfers of taxpayer value is now.There is no sense here that anything much has changed. Sure, we’ve lost some banks, we’re in a big recession, and everything we thought sensible for banks in terms of regulation/risk management/corporate governance lies in tatters. But it is obvious, from the words, tone, and body language of Mr. Dimon that he thinks his side has won and it is back to business as usual, albeit now with a somewhat larger market share. On all of this, he probably has inside information.

Considering all the above, it may be that the financial industry is simply consolidating and expanding its hard-won gains and that these gains will be ratified by governments that also like playing the game, while the once-backbone of America- the homesteader/homeowner- is reduced to virtual peonage.